What does one consultant want next for the water industry? Jackie Whitelaw talks to Scott Aitken, Grontmij’s UK and Ireland water and energy director about the Ofwat review and the October public spending cuts.
The big issue to be debated in the Ofwat review is sustainability,” says Grontmij’s head of water and energy for the UK and Ireland Scott Aitken. “At the moment I don’t think regulation is effective enough at leading to sustainable outcomes.” The problem, he says, is that the regulatory system is focused on affordability right now rather than investing in the present to the benefit of future generations. The Victorians did that for us. We ought to be doing the same for our own heirs.
Everyone knows there are pressures coming in terms of climate change and population growth, he says. “There are investments needed, in terms of water resources for instance, that may not give us the appropriate answers on affordability but if we delay making decisions we place a bigger burden on the generations of the future and the UK itself.”
Water spend escapes cuts
Government cuts to be announced next month and the general drive to curtail or delay spending should not impact on the water sector, he believes, as the regulatory review is complete and in place and spending for the current AMP5 period to 2015 is secure. However investment will only be made where there is confidence it will be made wisely.
“But what customers can afford could be an issue for AMP6,” he warns. Negotiations for the next water spending round will be taking place when people are dealing with tighter household budgets. It may be tempting to delay crucial maintenance spending to keep water bills down.
“As a country we have invested £85bn in our water assets since privatisation,” Aitken says. “It is hugely important they are maintained properly otherwise we are in danger of assets deteriorating beyond a level of recovery. Mid-life capital investment is a lot more affordable than wholescale replacement.”
“There are investments needed in terms of water resources that may not give us the appropriate answers on affordability”
Scott Aitken, Grontmij
If the industry wants to address waste of money, Aitken suggests, then it must sort out the disastrous peaks and troughs of the AMP spending cycle (see main feature). Grontmij has done particularly well in winning new work in the water industry for this spending period. But in the traditional slow down of work, as the regulator and water companies slugged it out over the next investment schedule, Grontmij along with other water consultants had to lay off people it would rather have hung on to. Part of the recruitment drive is to bring some of those people back into the business. “It is a far from ideal way to treat people. and it is a cost to our business,” Aitken says.
“I don’t however think we need to shift to a different regulatory model, but adjust regulation itself to create a flatter investment profile. The industry needs to be able to identify programmes that span across the investment cycle and with the focus of investment shifting to capital maintenance it should at least be possible to create a steady baseload.
“The current situation is crazy. We lose skills to other market sectors and geographic regions in the 18 month shut down and most of them don’t come back.”
Suppliers are far more likely to stick to a sustainable level of business in their contracts in the current spending period, Aitken predicted. Many had stretched themselves to do extra work in AMP4 in the expectation of an early start of AMP 5 work. That didn’t happen. “Businesses wont expose themselves to that level of risk again,” he says.
And with just three years to deliver a five year programme of work there is a risk that quality will suffer, he warns unless we can flatten the profile with a base load such as capital maintenance.
Aitken would like to see greater encouragement from the regulator for innovation. “There should be some encouragement of water companies in terms of innovation to ensure they get a return on investment,” he suggests.
And to conclude he predicts some interesting debates between Defra, the Environment Agency and Ofwat over the merits of environment legislation versus the cost and carbon load of energy use. “Treatment technology at the moment is very energy intensive. There will need to be a careful scientific balance as to what gives the best environmental benefit, additional treatment or not.”
Grontmij’s AMP5 Wins
● Scottish Water Technical Strategic Support Services
● Scottish Water Technical Design Services
● Scottish Water Specialist Consultancy Support Services
● Thames Water SCADA Replacement Programme
● United Utilities AMP5 Professional Engineering Consultancy Services (PECS)
● Welsh Water’s AMP5 programme for South Wales
● Welsh Water’s Asset Management
● Wessex Water’s 5-year AMP5
● Yorkshire Water Medium Treatment Workstream
● Yorkshire Water Large Projects
● Severn Trent Water Lots 1 and 2
● Anglian Water @one alliance